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Although I have no connection with financial investing or services, I read your analyses, and those of others, to be informed of events and topics of great economic importance. What strikes me as odd, is that in all the stories on European Contagion I find no mention of China's position. Given China's significant economic connection via trade with the European Union, it is puzzling we don't see more overt action from China to protect/affect the health of it's export recipient's economies. Am I to infer there is covert action (via GS, Central Banks, IMF for example), China is simply not concerned about the economic stability of the European Union, or it's just waiting for the appropriate time for action/influence?

We definitely know where China stands on U.S. trade and Fed's policies, and it's relations with the other BRIC countries.

Is there a story here that I've missed?

I replied:

I believe China's ability to alter its own course is grossly exaggerated. As a net exporter with relatively minimal internal consumption as a source of economic activity, it is basically at the mercy of importing nation's ability to buy their goods. Any attempt to stoke the ability of these nations importing will be ancillary at best. The "reported" success of their bubble blowing is showing only one side of the equation - the bubble blowing. Signs of a traditional bubble (such as the one whose bursting the US and Europe are struggling to escape from) are everywhere, yet the mainstream media has not focused nearly as much attention on such. Unless the laws of basic human nature has changed, expect to see China suffering from the effects of profligate excesses just as the others that tried to inflate their economies the quick and easy way did.

Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent.

“I’m struggling to make ends meet with costs going up like this,” said Liu, a native of Sichuan province who pays his workers as much as 1,800 yuan ($271) a month, or 88 percent more than the Beijing minimum wage, to serve up a staple Chinese meal. “Raising prices is the only way out,” he said, predicting he won’t be able to hold out beyond two months.

Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food. Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.

“They are just not addressing the fundamental problem at all,” said Patrick Chovanec, an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.

Now, it didn't take a genius to figure out this would happen. As a matter of fact a slight dose of common sense (when was the last time you got something for nothing, really?), a little historical perspective or a BoomBustBlog subscription would have sufficed.

May 11 (Bloomberg) — China’s inflation accelerated, bank lending exceeded estimates and property prices jumped by a record, increasing pressure on the government to raise interest rates and let the currency appreciate.

Consumer prices rose 2.8 percent in April from a year earlier, the fastest pace in 18 months, and property prices jumped 12.8 percent, the statistics bureau said in statements today. New lending of 774 billion yuan ($113 billion), announced by the central bank, was more than any of 24 economists forecast.

As an extension of the Chinese macroeconomic discussion at BoomBustBlog throughout 2010, there may be an “Asian Contagion” spreading as a result of a Chinese investment slowdown. Those at risk are the countries and regions that have supplied China with the commodities necessary to build empty cities. While the (comparatively, in terms of GDP) enormous Chinese stimulus package from the first part of the financial meltdown in 2008 has generated incredible growth in GDP and asset prices, the game appears to be over for flipping 1000 square foot apartments in Shanghai. After the direct hit taken to China, the picture looks very grim for Australia, where a bursting Chinese housing bubble could drive industrial commodities lower, sparking higher unemployment in one of the nation’s largest sectors, and in turn pop their domestic housing and property bubble. In the near to medium term, Australia is showing some major red flags.

2 comments

Don't forget Canada Reggie, I've been short Can$/long $US for awhile.
Vancouver average prices single family home hit $1mil last year. Some well priced energy companies are investing heavily up here, Lumber betting big on China also. Canfor's CEO was on biz tv, absolutly convinced to high heaven that china is his and everybody else's real deal!

Just like a kid who's truck is run over you go get another toy to play with :( , i work for a very small city that built a motor home park and spent over 40,000 dollars developing it plus countless thousands of man hours building it , thankfully someone stole about 30.000 dollars worht of wire and plumbing and even before this we had only rented it out and made about 400 dollars over several years .Now they spent over 100,000 dollars on a light and sound systems to have concerts in the park for free and sell burgers to pay for the expense , so when there are no consequences for the waste of tax payer monies i see the same thing with our last several presidents and the current leadership in EU. They don't believe in failure .they're own or they're friends !So they learn at our expense but don't learn because they aren't forced to.